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Save Tax with the Help of your Family

by | Jun 18, 2024 | Income Tax | 0 comments

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Important Keyword: Income Tax, Tax Saving Methods, Tax Savings & Deductions.

Save Tax with the Help of your Family

Family members can play a crucial role in helping you gain financial advantages, especially when it comes to income tax savings. By strategically associating a portion of your income with your family members, you can reduce your tax liability. In this article, we explore several effective methods to save on taxes through the involvement of family members.

Maximizing Tax Savings Through Family Members

Your family members can play a vital role in helping you achieve financial benefits, particularly when it comes to saving on income tax. By associating certain parts of your income with family members, you can effectively reduce your tax liability. Here are some methods to help you save taxes using your family:

Invest in the Name of Parents

If your parents fall into a non-taxable or lower tax bracket, you can invest money under their names by gifting them the amount. Monetary gifts to specified relatives are not taxed. This money can be invested in fixed deposits (FDs), the Senior Citizens Savings Scheme, and other such instruments. Senior citizens enjoy tax exemptions of up to INR 50,000 on interest income from savings or fixed deposits in any bank, post office, or co-operative bank. This means you can save up to INR 50,000 to INR 2,50,000 depending on your parents’ income, in addition to INR 50,000 from interest income.

Pay Rent to Parents

If you live with your parents in a house they own, you can pay them rent and claim a House Rent Allowance (HRA) deduction. Your parents can claim a deduction of 30% of the annual rent for repairs and maintenance under Section 24. This benefit is receivable under Section 10(13A). You can save the least of the following three:

  • Actual rent payable minus 10% of your basic salary
  • Total HRA provided by your employer
  • 40-50% of your basic salary, depending on your residential conditions
Buy Health Insurance for Parents

Purchasing health insurance for your parents who are above the age of 60 allows you to claim a deduction of up to INR 50,000 for the premium paid. This benefit is available under Section 80D.

Joint Home Loan

If you and your spouse are co-owners and co-borrowers of a self-occupied property, both of you can claim tax benefits on the interest and principal payable for a home loan. This can help you save up to INR 7,00,000 depending on the home loan amount, with exemptions available under Section 80C.

Providing a Loan to Spouse

Instead of gifting money to your spouse, which would be taxed as your income, provide a loan at a reasonable rate of interest. Though the interest will be added to your income, if your spouse invests in an instrument with a higher return rate, you can save on taxes.

Education Loan

Taking an education loan for higher studies offers a tax benefit on the repayment of interest for up to 8 years, starting from the year in which interest payment begins. The loan must be from a government-approved financial institution. You can save tax under Section 80E.

Investing for Children

Invest in your child’s name in tax-saving instruments like PPF, mutual funds, ULIPs, and traditional insurance plans, which are eligible for tax benefits under Section 80C. Income earned from these investments will be taxed. To avoid this, opt for tax-free investments like PPF. Investments in equity mutual funds also remain tax-free if gains are less than INR 1,00,000 a year.

Tuition Fees, Education Allowance, and Hostel Accommodation Fees

If you haven’t fully utilized your Section 80C deduction limit, you can claim deductions for the tuition fees of up to two children. Salaried employees can also claim an exemption of INR 100 per month per child (up to two children) as children’s allowance and INR 300 per child as hostel expenditure allowance.

Deduction for Dependent with Disability

If you have a family member with a disability or specific disease requiring high medical expenses, you can claim a deduction under Section 80DDB for the expenses incurred on their treatment and maintenance.

Invest in the Name of Adult Children

If your child is above 18, their income will be taxed separately. If they fall under the tax-exempt category, you can gift them money. Investing this money in tax-free instruments will ensure the income earned remains tax-free.

Read More: Income Tax Rebate under section 87A

Web Stories: Income Tax Rebate under section 87A

Official Income Tax Return filing website: https://incometaxindia.gov.in/

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